Supreme Court Verdict on State Taxation of Mineral-Rich Lands

Context

• A nine-judge Constitution Bench, headed by Chief Justice of India D.Y. Chandrachud, on Thursday held by an 8:1 majority that Parliament cannot limit the power of State legislatures to tax mineral-bearing lands and quarries. The judgment, freeing States from the restrictions imposed by the Centre, is in tune with the federalist principles of governance.

Key Rulings

1. States’ Right to Tax Mineral Lands
   • Unlimited Taxation Rights: The Supreme Court ruled that Parliament cannot restrict the power of State legislatures to tax mineral-bearing lands and quarries.
   • Federal Principles: The judgment emphasized that limiting State taxation powers would hinder their revenue-raising capabilities and consequently their ability to fund welfare schemes and public services.
2. Implications for Fiscal Federalism
   • Revenue and Welfare: The ability of State governments to invest in infrastructure, health, education, human capacity, and research and development is directly tied to their revenue-raising capabilities.
   • Economic Disparity: The judgment highlighted the economic struggles of mineral-rich States like Chhattisgarh, Jharkhand, and Odisha, which have per capita incomes below the national average.
3. Royalty Payments
   • Royalty vs. Tax: The court ruled that royalties paid by mining leaseholders to the States are not considered taxes. Instead, they are contractual considerations for mineral rights.
4. Constitutional Provisions
   • Article 246 and Entry 49: State legislatures derive their power to tax mines and quarries from Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution.
   • Entry 50: The Centre’s argument that Entry 50 allowed Parliament to impose limitations on taxes on mineral rights through laws like the MMDR Act was rejected. The court held that Entries 49 and 50 deal with distinct subject matters and operate in different fields.

Dissenting Opinion

• Justice B.V. Nagarathna: In her dissenting opinion, Justice Nagarathna argued that the States’ power to tax under Entry 49 of List II did not include “mineral-bearing lands”. However, she agreed with the majority that royalty was not a tax.

Background and Legal Basis

• Case Origin: The case originated from a dispute between India Cements Ltd. and the Tamil Nadu government.
• Entry 54 of Union List: The Chief Justice noted that Entry 54, which pertains to the regulation of mines and mineral development, does not grant Parliament the competence to tax mineral rights.

Implications of the Judgment

• Strengthening State Autonomy: The judgment reinforces the autonomy of State legislatures in financial matters, crucial for maintaining a balanced federal structure.
• Economic Empowerment: States will have more control over their resources and the ability to generate revenue from mineral-rich lands, potentially leading to better economic outcomes for mineral-rich but economically lagging States.
• Policy Making and Implementation: The decision allows States to create and implement taxation policies suited to their unique needs and circumstances, enhancing local governance and accountability.

Conclusion

The Supreme Court’s ruling affirms the fiscal federalism principle by empowering States to legislate and tax mineral-bearing lands independently of Parliamentary restrictions. This landmark judgment underscores the importance of State autonomy in financial matters, crucial for the socio-economic development of mineral-rich States. 

Solve FREE Quiz  Series on Recent News

Click:👉 July 2024 Current Affairs-Test V: 

Click:👉 July 2024 Current Affairs-Test V: 

Click:👉 July 2024 Current Affairs-Test II:

 Click:👉  July 2024 Current Affairs-Test I: